Responsible Sourcing: Leading by Example and Setting New Precedents in the Supply Chain

RESPONSIBLE SOURCING Sila Vogiatzaki and Thiago Gomes explain Lonza’s commitment to enabling a healthier world by driving supplier sustainability and decarbonization.

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LONZA

The Business Profile

RESPONSIBLE SOURCI LEADING BY EXAMPLE NEW PRECEDENTS IN Lonza’s purpose as a global healthcare manufacturer is to ‘enable a healthier world’.

Beyond its core products, this philosophy has expanded into one of the industry’s most tailored supply chain responsibility initiatives, as shown by a dedicated responsible sourcing programme, and an efficiency-driven CapEx function. Sila Vogiatzaki represents the former, and Thiago Gomes the latter, as both explain Lonza’s commitment to enabling a healthier world by driving supplier sustainability and decarbonization.

Hello to you both. It would perhaps be a good start to get a bit of an introduction from each of you about your specialty and your current focus within the company?

Sila, can we start with you?

Since 2021, Lonza has focused its activities on seven key sustainability areas aligned with the UN’s Sustainable Development Goals (SDGs) and our material topics. These topics range from climate and water action to people development, gender equality and customer satisfaction metrics. We have assigned each SDG to

a member of the Executive Committee (EC) and an SDG Global Champion, who are responsible for driving improvements across our business.

In 2022, I joined Lonza’s Procurement Excellence department to develop a Responsible Sourcing programme, and embed ESG principles and requirements within our procurement management processes.

I have built a global team of seven experts who work closely with our suppliers and procurement buyers to adopt these requirements and principles. The programme

is a central element of our commitment to SDG 12 (Responsible Consumption and Production), of which I am the Global Champion.

Over the past two years, we have set up the programme based around two main initiatives. One is supplier sustainability, which involves careful due diligence of our suppliers to ensure we identify, measure and mitigate the ESG risks in our supply chain. The other is supplier decarbonisation, engaging with suppliers to support them in setting minimum Scope 1 and Scope 2 science-based targets.

As Sila mentioned, this points to a strategy where we’re aligning with partners who have similar sustainability and decarbonisation goals as Lonza, and ensuring that each new asset gets off to a positive start from a sustainability perspective.

Every year, we target a number of incumbent suppliers as part of our initiatives, while we have also started working on embedding similar principles into our supplier onboarding process.

Perfect. And Thiago, I’m sure your role overlaps with this strong emphasis on

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ING: E AND SETTING THE SUPPLY CHAIN

sustainability, but what is your primary focus within the company?

For sure. I joined at the same time as Sila in 2022, to support the global CapEx procurement team. Here, I’m especially involved in areas of Automation, Civil Structural & Architectural (CSA) and Fitout.

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Lonza is very active in the CapEx arena, and we’re building a lot of new assets to meet the vast demand we have from customers. We need to increase capacity and that requires investment. So, I’m supporting the company to come up with these assets as quickly and, more importantly, as sustainably as possible.

As Sila mentioned, this points to a strategy where we’re aligning with partners who have similar sustainability and decarbonisation goals as Lonza, and ensuring that each new asset gets off to a positive start from a sustainability perspective.

Great, thanks Thiago.

Because there is an inevitable overlap between the two of you, we can bounce back and forth between the two disciplines.

However, one theme that certainly relates to both of you are industry trends and challenges. What would you pinpoint as the main issues you’re navigating more generally at present?

Thiago…

Yeah, I’d like to start from a CapEx and facilities perspective by mentioning

three secular trends; the first falling under the banner of ‘people’. About 30 percent of office space will be consumed as flexible space by 20301 due to new work models, as a result of recent events including the pandemic. The whole real estate landscape is changing, and people are changing the way they work.

Then there’s the broad banner of ‘business’. As much as 80 percent of a building’s lifecycle cost occurs in the operation phase, which would suggest an opportunity to scale back on this type of investment. However, 74 percent of building owners still believe building design and management is key to attract new talent, so business real estate’s value is still there2.

Then there is the environment. Buildings account for as much as 40 percent of energy consumed worldwide3. This illustrates how big the opportunity is to use new assets to realise energy ambitions and sustainability goals.

Digitalization is also key to ensure the success of more sustainable new builds, yet only 37% of digitalization projects4 currently succeed in merging innovation and

sustainability through their buildings.

The reason I bring these points up is because it shows the importance of having an ecosystem of likeminded partners when scaling up our real estate. Having the right partners will help us to produce more sustainable buildings, which will both save energy and attract new talent.

And Sila, what have you noticed from a trend perspective and what are the main challenges in your area?

I’d like to incorporate the aspect of regulatory changes into our perspective. While developing the Responsible Sourcing programme aligns with our internal objectives, it’s crucial to recognise that the framework for assessing, reporting, and auditing sustainability and decarbonization is evolving due to new regulations and laws. This shift is not only significant for us but also for our partners who we aim to inspire and guide.

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According to Siemens research

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According to Siemens Building

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X Trends

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Alliance to Save Energy

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According to Siemens research

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It’s worth noting that many of our suppliers may currently lack the resources or digital tools necessary to integrate and accurately report data.

This aspect underscores much of what Thiago has emphasised. We must provide them with the support they need to join us on this journey towards achieving responsible sourcing. This involves assisting our suppliers in acquiring the resources and capabilities required to integrate responsible practices effectively.

Thiago Gomes

Even more pressure on you, then, to set an example and bring partners along with you on your journey?

Absolutely. Our approach involves coaching suppliers and sharing our experiences transparently. We reflect on lessons learned, and then offer practical advice along with free tools to support them in their journey.

Earlier this year, we hosted a large-scale digital event with more than 1,000 attendees from more than 450 suppliers.

During this event, we introduced our Responsible Sourcing programme, outlining our expectations Sila Vogiatzaki

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while dedicating ample time to coaching and providing clear guidelines on how they can meet these expectations.

Going back to that term, ‘overlap’, how does this coaching ethos play out in your area of CapEx and supplier relations, Thiago?

Within my team, we aim to support Lonza in tracking and reducing Scope 3 emissions, both for our own business and our suppliers.

Also referring to the digi-

talization element, we have focused on using building management systems which can elevate the way we heat and cool different rooms within buildings, for example. We are also working with partners that provide tools to track water and electricity consumption.

They also provide forecasting capabilities, so you can see if you are going to meet your own specific objectives that month or later in the year based on current consumption trends. The systems identify quick actions

that can be taken to reduce consumption.

Alongside coaching suppliers, it is also about choosing the right partners based on our current strategic goals.

For example, we seek to work with partners offering platforms that enable us to be more agile and flexible with regards to maintenance and fixing assets. Platforms that can raise notifications or alerts relating to our assets can saving time by reducing the need for continuous manual checks, and reduce

You mentioned your ‘team’ there Thiago. Obviously with all of these focus areas, it’s not just you two translating these objectives and missions to suppliers. Sila, how vital has it been to get buy-in from your own colleagues and teammates to ensure the culture is consistent?

Good question, but this has thankfully been quite

easy to manage from my perspective. We in Responsible Sourcing are all experts on sustainability and decarbonisation and have a shared ambition to educate people, make partners and suppliers sustainability ambassadors, and to form relationships based on mutual goals.

Have you received much resistance to the programme from suppliers, or has this united front and clear message hit its mark so far?

The primary - and perhaps the only - concern that some may have revolves around the sustainability assessment and the repercussions if they fall short of expectations during an inventory. “What happens if we don’t meet the score you require?” is a common question.

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costs through better energy management, while also supporting our general sustainability KPIs.

Our message is straightforward: it’s not about excluding companies or cutting business ties. Instead, it’s about embarking on an improvement journey together.

This involves understanding

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each supplier’s starting point, acknowledging their unique challenges, respecting varying resource capacities, and engaging with them consistently to set realistic goals and milestones over time.

That’s why we’re committed to sharing tools, insights, data and industry knowledge with each of our partners. Our aim is to support them, not to penalise or categorise them as good or bad. We’re focused on helping them progress and succeed in their sustainability and decarbonisation efforts.

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Thiago, you have something to add?

Yes, just to help understand that with smaller suppliers especially, some do not even have a sustainability department, but it is not something that would stop us partnering with them.

Quite the opposite. We show them the potential of certain tools, the benefit of more efficient processes, the impact of different regulatory demands and expectations on their business. This is to support them in their own

sustainability journey, as much as it is to support our sustainability strategy.

A good example of this is us finding sponsors for new tools that will help suppliers reduce their energy consumption, that they do not have to pay for upfront. They can use resources and financing from other organisations initially, with the evidence from us that they will save money over time when these solutions essentially pay for themselves.

Crucial to that communication, I imagine, is also being transparent about your own progress? Sila…

Annually, we undergo an assessment by EcoVadis, the same provider we utilise to evaluate our suppliers.

This assessment allows us to showcase our score, our progress to date, and our performance across four pillars: environment, human rights, ethics and sustainable procurement.

In particular, over the past year alone, we’ve made significant strides in sustainable procurement, improving by 20 points.

This progress not only

reinforces our commitment within the programme but also demonstrates to our partners that the journey we’re advocating for yields tangible and positive outcomes. It’s about showing them firsthand that embracing responsible sourcing initiatives leads to measurable improvements and benefits.

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We can show them what their business will look like at the other side of these investments, based on the experience we have and numerous scenarios we have experienced with other suppliers. It can be the push they need to improve their business, ensure compliance, and become more attractive as a partner more generally, not just to Lonza.

Presumably, Sila, there are targets you’ve set internally, that are then compared against these score increases?

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Pharma & Biopharma, Nutrition and Pure Water

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Biopharma, Nutrition and Pure Water. On the one hand, the systems help to maintain and improve people’s health and quality of life and on the other hand, they make the use of resources in production more sustainable and efficient.

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This year, our primary objective was achieving our Science-Based Target initiative (SBTi) verification for Scope 3 emissions, which we successfully received and announced this April. Looking ahead, our focus for the remainder of the year includes increasing the proportion of our spend derived from suppliers that have undergone a sustainability evaluation.

In 2023, we have reached 72% of our spend coming from suppliers with sustainability evaluations.

Additionally, we have identified a targeted group of suppliers with whom we aim to deepen engagement on decarbonisation efforts, by engaging with each one to facilitate and support their improvement efforts throughout this year and beyond.

And Thiago, how about your goals? One aspect we haven’t touched upon much yet, is the way you achieve improved efficiencies through the physical construction of new real estate assets.

Perhaps you could shed some light on these ambitions?

It is a good point, as these elements are good evidence of identifying the right partners so far. So, for example, in terms of partnering with suppliers that help to reduce CO2 emissions, there has been a focus on reducing pipe supports by 20 percent, which not only reduces weight and installation times, but also CO2 emissions by as much as 42 percent5.

Further with piping, we are encouraging reuse of pipe supports as well as cleanroom panels as part of our material recycling activities. And, also for a CapEx project in Visp (CH), we are reducing the use of welds and extra bulk materials in the piping, such as fittings and flanges, by doing pipe bends. Again, this reduces time and costs associated with the overall piping package and reduces the CO2 footprint.

Perfect. Thiago, we have discussed how CapEx is intertwining with the Responsible Sourcing programme in terms of identifying suppliers, encouraging innovations, and upskilling the SME segment.

But, as a final question to you, how would you surmise Lonza’s role within this overall ecosystem?

Other interesting innovations being implemented can be seen through 3D printing valves to reduce waste material. While, in Stein (CH), we are implementing a new freeze-drying solution which uses CO2 air cooling to reduce energy consumption and greenhouse gas emissions.

Right now, sustainability is a key concern that we want to be ahead of the game with. Encouraging and helping suppliers to sprint along with Lonza, enables us to promptly execute our corporate strategy, while swiftly delivering on our sustainability goals.

We are an enabler. Our key competitive advantage, despite our size, is our speed. To be competitive in this market you must be extremely fast in serving customers’ needs and getting products to market quickly.

That means having fit for purpose processes, a united team, strategically located facilities, and a smoothrunning supply chain. And all of that is dependent on having suppliers that can respond just as quickly as we need to.

LONZA Our message is straightforward: it’s not about excluding companies or cutting business ties. Instead, it’s about embarking on an improvement journey together.

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Sila, your final thoughts?

The central message here is that our approach isn’t about simply demanding suppliers to meet our standards. It’s not about subjecting them to endless evaluations and examinations.

Instead, we’re establishing an ecosystem aimed at fostering a movement that impacts us collectively. As Thiago pointed out, we possess the necessary resources and expertise to act swiftly and proactively. However, this capability also brings a responsibility to assist others. We want to demonstrate to suppliers that we are not distancing ourselves from them; rather, we are eager to collaborate and support them in every possible way, ensuring that we progress together.

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According to research from Hilti

LONZA This year, our primary objective was achieving our Science-Based Target initiative (SBTi) verification for Scope 3 emissions, which we successfully received and announced this April.

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